On June 6, 2016, Justice Alan D. Scheinkman of the New York Supreme Court for Westchester County denied J.P. Morgan’s motion for summary judgment on MBIA’s fraudulent concealment claim. The court had previously granted summary judgment in favor of J.P. Morgan on MBIA’s fraud claim, but permitted MBIA to amend its complaint to add a fraudulent concealment claim that J.P. Morgan failed to disclose complete and accurate third-party due diligence results regarding the collateral underlying the securitization. First, Scheinkman rejected J.P. Morgan’s argument that it did not owe MBIA an affirmative duty to disclose the results of the due diligence review. The Court held that the bid letter between J.P. Morgan and MBIA evinced a contractual relationship between the parties, and that even in the absence of such a relationship, J.P. Morgan was acting as an agent for the deal’s sponsor, who was obligated to share the due diligence results with MBIA. Second, Scheinkman held that issues of fact precluded summary judgment on actual reliance, because withholding, disguising the significance, and delivering an altered version of due diligence results may have thwarted MBIA’s ability to protect itself. Last, the Court held that whether MBIA justifiably relied on J.P. Morgan’s failure to disclose the due diligence results is a question for the jury. Decision & Order.
monoline insurer
New York Court Orders Rating Agencies to Produce Internal Communications Regarding RMBS Ratings in Monoline Insurer Lawsuit
Justice Eileen Brantsen of the Supreme Court of the State of New York ordered non-parties Standard & Poor’s Rating Services and Moody’s Investors Service, Inc. to produce their internal communications concerning their “shadow ratings” of certain RMBS certificates at issue in an action between monoline insurer MBIA and several Countrywide affiliates. MBIA maintains that it received and relied upon the “shadow ratings” in deciding whether to insure the Countrywide RMBS. MBIA argued that the requested documents were directly relevant to Countrywide’s alleged misrepresentations and the reasonableness of MBIA’s reliance on Countrywide’s representations regarding the quality of the loans underlying the RMBS. Order.
S.D.N.Y. Holds Monoline Insurer Can Pursue Pool-Wide Remedy Based on Sampling of Loans
On March 25, 2011, Judge Paul A. Crotty of the Southern District of New York granted partial summary judgment to Syncora Guarantee, Inc., a monoline insurer, in a suit against Bear Stearns affiliate EMC Mortgage Corp. In that decision, Judge Crotty rejected EMC’s argument that the exclusive remedy available to Syncora for breaches of representations and warranties on Home Equity Line of Credit (“HELOC”) residential mortgage loans underlying the insured securitization was the repurchase of the individually identified, non-complying loans. Instead, the court, citing the broad rights and remedies for which Syncora bargained, accepted Syncora’s position that it “could seek a pool-wide remedy based on sampling and extrapolation.” Syncora Decision.
Appellants’ Brief Filed in New York Court of Appeals in Case Alleging Fraudulent Restructuring by MBIA
On March 16, 2011, plaintiffs in ABN Amro Bank, et al. v. MBIA Inc., et al. filed their opening brief in the New York Court of Appeals. Plaintiffs are appealing the 3-to-2 decision of an intermediate appellate court dismissing their suit challenging the “fraudulent restructuring” of monoline insurer MBIA. The case, brought by a group of banks that are beneficiaries of MBIA’s structured finance-related policies, claims that MBIA transferred $5 billion in assets from MBIA Insurance Corporation (a failing subsidiary) to MBIA Illinois (a stronger subsidiary). The move, which occurred in February 2009, was approved by the then-New York Superintendent of Insurance. The plaintiffs’ complaint alleges that the restructuring rendered MBIA Insurance insolvent, was intended to defraud creditors, and was an abuse of corporate form. On appeal, plaintiffs argue that the intermediate appellate court’s holding that their complaint was an improper collateral attack on the Superintendent’s regulatory approval is wrong because they had no opportunity to be heard before the Superintendent gave the approval, because New York insurance law does not bar their claims under the Debtor and Creditor Law, and because the intermediate appellate court improperly shifted the burden to plaintiffs in considering MBIA’s motion to dismiss. Brief.